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  • John Keel, CPA State Auditor

    A Biennial Report on

    The Total Compensation Package for State of Texas Employees September 2006 Report No. 07-701

  • A Biennial Report on

    The Total Compensation Package for State of Texas Employees

    SAO Report No. 07-701 September 2006

    This report was conducted in accordance with Texas Government Code, Chapter 654.

    For more information regarding this report, please contact Susan Riley, Assistant State Auditor or John Keel, State Auditor, at (512) 936-9500.

    Overall Conclusion The State of Texas provides a comprehensive total compensation package to employees working in state agencies and higher education institutions.

    “Total compensation” is a phrase used to describe the complete rewards and recognition the State provides to employees in exchange for their time, talent, and efforts. The cost to provide this package represents a significant investment for the State of Texas and accounted for 60 percent of total operating expenses in fiscal year 2005.

    In addition to payroll and benefit costs, the State provides employees with other rewards that cannot be easily quantified but provide indirect, real, and valuable benefits. Examples of these rewards include employee recognition programs, professional training and career development, a challenging and rewarding work environment, and flexible work schedules.

    Key Points

    The State of Texas invested $15.6 billion in salaries, wages, and benefits in fiscal year 2005.

    Compensation and benefit expenditures account for a large percentage of the State’s operating expenses each fiscal year, and state agencies and higher education institutions use a variety of tools to increase employee pay. However, the availability of funding for those pay increases is often a concern for agencies and higher education institutions.

    Background Information

    The State of Texas employed an average of 280,817 full-time equivalent (FTE) employees in state agencies and higher education institutions during fiscal year 2005. An FTE is a ratio that represents the equivalent of a 40-hour- a-week employee and is not the same as headcount.

    An average of 141,927 FTEs (51 percent) work at 127 state agencies. This represents 24 percent of the public administration labor market in Texas.

    An average of 138,890 FTEs (49 percent) work at 67 higher education institutions. This represents 14 percent of the educational labor market in Texas.

  • A Biennial Report on the Total Compensation Package for State of Texas Employees SAO Report No. 07-701

    ii

    Although the cost to provide benefits to state employees has increased, the State continues to offer a comprehensive benefits package.

    The cost to provide health insurance benefits to state employees increased 20 percent from fiscal year 2002 to fiscal year 2005. Despite increasing costs, the State has been consistent in funding 100 percent of member-only coverage for full- time employees and 50 percent of dependent coverage. In addition, the State maintains strong retirement and paid time off packages, and employee feedback indicates high satisfaction levels with those benefits.

    State agencies and higher education institutions offer challenging and rewarding work and performance and recognition programs, and they encourage their employees to pursue training and career development.

    State agencies and higher education institutions use a variety of tools, both monetary and non-monetary, to motivate and retain employees. Feedback from surveys indicates that a majority of employees are proud to work for the State, feel they are evaluated fairly, are given the opportunity to do their best work in state government, and have access to training and developmental opportunities.

    Summary of Objective, Scope, and Methodology

    The objective of this study was to identify the total compensation package, including salary, benefits, and other components, provided by the State of Texas to employees working in state agencies and higher education institutions.

    The scope of this study included reviewing expenditures for salary, wages, and other benefits made by state agencies and higher education institutions; analyzing related information provided by state agencies and higher education institutions; and conducting a state-wide survey on total rewards. The State Auditor’s Office’s State Classification Office conducted this review in accordance with Texas Government Code, Chapter 654.

    The State Classification Office conducts periodic studies of salary rates and trends in private industry and other governmental agencies for work that is similar to work performed in state government. This project was a review; therefore, the information in this report was not subjected to all the tests and confirmations that would be performed in an audit. However, the information in this report was subject to certain quality control procedures to ensure accuracy and compliance with generally accepted compensation practices.

  • Contents

    Detailed Results

    Introduction ............................................................ 1

    Chapter 1 Expenditures for Salaries and Wages Increased 10 Percent from Fiscal Year 2002 to Fiscal Year 2005 .............. 4

    Chapter 2 Although the Cost to Provide Benefits to State Employees Has Increased, the State Continues to Offer a Comprehensive Benefit and Retirement Package ................ 8

    Chapter 3 State Agencies and Higher Education Institutions Use a Range of Employee Performance and Recognition Programs ...............................................................14

    Chapter 4 The State Supports and Encourages Training and Career Development Opportunities for Employees ......................16

    Chapter 5 The Public Sector Work Environment Provides Challenging, Rewarding, and Diverse Work Opportunities.....19

    Appendix

    Appendix Objective, Scope, and Methodology...............................23

  • A Biennial Report on the Total Compensation Package for State of Texas Employees SAO Report No. 07-701 September 2006 Page 1

    Detailed Results

    Introduction

    The State of Texas invested $15.6 billion in fiscal year 2005 to provide salaries, wages, and benefits to employees working in state agencies and higher education institutions. This amount represented $55,433 for every full- time equivalent employee working in state government and 60 percent of the State’s total operating expenses. Total dollars invested in each category for fiscal years 2002 through 2005 are shown in Figure 1.

    Figure 1

    State of Texas Operating Expenses Fiscal Years 2002-2005

    Note: Operating expenses include all general and administrative overhead expenses and exclude capital outlay and debt service.

    Source: State of Texas comprehensive annual financial reports for fiscal years 2002 through 2005.

    In addition to payroll and benefits, the State provides employees with other rewards that cannot be easily quantified but provide indirect, real, and valuable benefits. These rewards include training and professional development, flexible work schedules, challenging and rewarding work, and employee recognition programs. All of these rewards factor into the “total

    $11,151,727,000 $11,545,936,000 $11,723,532,000 $12,225,524,000

    $3,040,889,000 $3,385,394,000 $3,140,257,000 $3,340,960,000

    $8,970,632,000 $7,231,546,000 $9,173,859,000

    $10,209,853,000

    $0

    $5,000,000,000

    $10,000,000,000

    $15,000,000,000

    $20,000,000,000

    $25,000,000,000

    $30,000,000,000

    Fiscal Year 2002 Fiscal Year 2003 Fiscal Year 2004 Fiscal Year 2005

    Salaries and Wages Benefits General Expenses

  • A Biennial Report on the Total Compensation Package for State of Texas Employees SAO Report No. 07-701 September 2006 Page 2

    compensation” package the State provides to employees in exchange for their time, talent, and efforts.

    Total compensation (or total rewards) is a phrase used to describe the complete reward and recognition package that an employee receives. Use of the total compensation package allows the State to leverage multiple factors to attract, motivate, and retain employees. This package includes an employee’s base salary, benefits, and other perquisites as listed in Table 1.

    Table 1

    The State’s Total Compensation Package

    Component Description

    Compensation Includes all wages and salary provided to employees.

    Benefits Includes federally mandated programs such as Social Security and unemployment and core benefits that satisfy an employee’s basic expectation for health insurance, retirement, and time off.

    Performance and Recognition

    Includes programs that acknowledge or give special attention to employee actions, efforts, behavior, or performance. These programs may include monetary and non- monetary rewards.

    Training and Development

    Includes opportunities for employees to perform better in their jobs or advance their career goals.

    The Work Experience

    Includes items that are important to employees and the State but that are less tangible than employee pay and benefits. This component may include scheduling flexibility, programs to help employees be successful at home and

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